Delta Electronics

Delta Electronics Plc (DELTA) 

 

 - Profit to peak in 3Q15 due to high season 

We estimate DELTA's 3Q15 net profit at B1.8bn, up 7.3%qoq but falling 6.1%yoy. Total income is expected to grow 7.6%qoq to B12bn. Income from the data center and telecommunication businesses would continue growing, but partly negated as income from the telecommunication infrastructure project in India drops slightly. 3Q15 gross margin is expected to rise to 27.7% as DELTA's product mixes would focus more on higher-margin products and THB has weakened by 6.0%qoq to B35.25/US$. In additions, SG&A/Sales is projected to decrease to 13.0% as total income grows, overseas sales offices start to generate profit, and previously high investment expense drops. 

- Strong business in 2016  

We maintain 2015-2016 earnings forecast. Normalized profit is expected to jump by 20.4%yoy in 2015, and 2016 net profit is projected to leap by 14.0%yoy. Income from the core businesses (data center and telecommunication) would continue growing. The automotive business would make a breakeven in 2016 as more products would be launched for sales, especially hybrid car and electric car products. 4Q15 net profit is projected to drop after an export season ends in 3Q15 as overseas orders drop; foreign customers have stockpiled their goods in 3Q15 in preparation for long holiday at the end of the year.  

- Share price already surpasses 2016 fair value 

Although the current share price has already exceeded 2015 fair value (DCF, 11.58% WACC) of B77, we will switch to use 2016 fair value of B92 after 3Q15 earnings report next week, which is close to the current price. We recommend holding for dividend.